When you start trading it is always a question on strategy. One could consider why close negative positions and decrease your balance. Why not to wait while position turns positive, close it and increase your balance instead. Seems quite good. But is it so?
It is quite clear that if you open one big position which takes all your margin and if market goes against you, it could take years while your position turns positive or it could never happen if you receive margin call. Of course there is possibility to continuously add additional funds and wait while market goes in your direction. But it could take long years. From statistical point of view it should happen sooner or later but from statistical point of view it also could take more time than human being could live on this planet! It seems not interesting perspective.
Therefore another possibility comes to mind. To use small positions which takes little part of your margin and if market goes in your direction just close profitable position and if market goes against you open new position at some point with expectation to close this position when it turns profitable. If not - open one more position with same expectation and so on and so on. Graphically it could be depicted like that:
Lets assume there are 1000 USD in balance and every position is buying of 1000 EUR/USD. Every position entry (buy) is represented by blue line in the graph and every take profit by green line. Buying is activated every 100 pips and take profit for every trade is set to 100 pips also. In such a scenario there were 6 profitable trades and every trade has brought 10 USD profit, i.e. after depicted period there were 1060 USD in balance and 3 open unprofitable trades approx. -36 USD (-2 USD/ -12 USD/ -22 USD). That's looks fine from first point of view increase of equity of 24 USD.
But is it really so great? Lets do deeper investigation. First of all similar fluctuations in real world could happen during 2-4 months cycles. 24 USD is 2.4 % profitability - if such "comfortable" scenario would continue during a year, yearly profitability would be around 9-10 %. Not great result at all?!
On the other hand what about risk of margin call? In presented scenario worst situation was with 4 unprofitable trades with total -60 USD. Margin call looks quite far. But if situation even worsen. Lets say to 1.24. In this case there would be total - 280 USD and margin call approaches at high speed! Further 300 pips (1.21) would turn to - 550 USD and this level already represents margin closeout on some platforms.
So there is no trading without stop losses. Just in case you trade with small position your stop loss is quite distant but very hurting as it is actually margin closeout. Conclusion could be made that trying to trade with small profits with holding big negative positions leads to nowhere. It just question of time when market goes enough number of pips to burn your account. And if you trade with extremely small positions it will not be marginal trading at all.
For me it took several years to understand this. Now I try other trading strategies and find them a lot better than theoretical model which I described above.